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Should I Buy Standard Life plc?

I’m out shopping for shares again. Should I add Standard Life (LSE: SL) to my wish list?

Last time I looked at insurer Standard Life, in December 2012, I was impressed. Its share price chart resembled an escalator, moving relentlessly upwards year after year, a smooth and steady riser in volatile times. The 200-year old insurer also looked well placed to survive the Retail Distribution Review, the regulatory overhaul of the financial services industry, and was looking to cash in on auto-enrolment, which should give millions of employees a company pension for the first time. My only quibble was that trading at 16.5 times earnings, it looked a little pricey. That was then, would I buy it today?

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All good things come to an end, and so has the Standard Life escalator effect. Its share price is down more than 8% in the past six months, against a modest 1.3% rise for the FTSE 100 as a whole. It is the weakest of the big four UK insurers in that time, with Aviva leading the pack with 26% growth, followed by Legal & General Group (15%) and Prudential (1.5%). So why has Standard slipped?

Wonderful Life

Last month, it reported a 28% rise in half-yearly 2013 pre-tax UK profits to £161 million, while assets under management rose 7% to £232bn. New sales of long-term savings rose 21% to £12.2bn. It also reported strong growth in fee-based revenue and a healthy balance sheet, and raised the interim dividend 6.5% to 5.22p. Chief executive David Nish said: “Standard Life has made really good progress in the first half of the year, delivering substantial growth in sales, flows and assets, all driving higher revenues and operating profits.” It is also growing strongly outside the UK, in Canada and Asia. What more do people want?

Standard Life isn’t even that expensive any more, trading at 11.6 times earnings. That makes it far cheaper than Legal & General at 14.4 and Prudential at 15.1 times earnings. Its yield is better than both of them, at 4.27% against L&G’s 3.83% and Prudential’s 2.51%. Only Aviva yields more at 4.63%.

High Standard

QE tapering could hit fund inflows and assets under management, which would hurt Standard Life. That partly explains recent volatility. But I’m impressed by its recent performance, even if many brokers aren’t (Credit Suisse and Bank of America are both ‘neutral’ on this stock), and I like the fact that it’s a fair bit cheaper than it was. Forecast earnings per share growth of 11% next year, which would take the yield to 4.9%, looks worth having. I reckon that the recent share price slide is a buying opportunity, but that’s just me. Life is what you make it.

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> Harvey Jones owns shares in Aviva and Prudential. He doesn’t own any other company mentioned in this article

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